Get Rich with Dividends: A Proven System for Earning Double-Digit Returns

Dividend Growth

The stock market is all about growth. Investors buy stocks whose earnings and cash flow are growing. Income investors want rising dividends. CEOs try to grow their sales and margins.

A key component in the formula is dividend growth. Without it, the dividend will lose its buying power due to inflation. Even with low inflation, over the years, the money won’t buy as much as it used to.

A company that raises its dividend by a meaningful amount every year typically has rising earnings and cash flow. It’s a sign of a healthy business and, just as important, shows that management understands its fiduciary duty to shareholders.

The historical average dividend growth of the S&P 500 is 5.6% per year. That’s not bad considering the average inflation rate of 3.4%. So investing in the S&P 500 has kept investors ahead of inflation and preserves their buying power.

But we want to be way ahead of inflation. Inflation isn’t always going to stay low. In some areas of the economy, it’s already pretty darn high. Gas, food, college tuition are just a few segments where prices seem to rise significantly every year, no matter what government statistics say.

Therefore, we want strong (but sustainable) growth in our dividend every year.